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Top Takeaways from FTC's Google Antitrust Decisions -- Part 16 Google Unaccountability Series
Submitted by Scott Cleland on Mon, 2013-01-07 11:21
Summary of Top Takeaways from the FTC's Google Antitrust Decisions:
1. Google's U.S. search bias win establishes a broad Internet-friendly FTC antitrust enforcement precedent.
In a nutshell, the FTC apparently concluded that U.S. vs. Microsoft was the only relevant precedent in the Google search bias case, effectively meaning that if a company does not behave like Microsoft did it can't be anti-competitive. This frame misses the forest-for-the-trees. Microsoft's anti-competitive behaviors were but a subset of all potential anti-competitive behaviors. Moreover, Microsoft's direct business model, where the consumer pays for the product, is the business model opposite of Google's indirect model, where the advertiser pays for access to the "product" which in Google's instance is the consumer. Furthermore, the facts of the Microsoft case were pre-Internet era whereas the Google facts are Internet era with dramatically different market dynamics and network effects.
Most tellingly, in the Microsoft case there was no pre-judged DOJ limit upon what consumer harms could be. However, several years prior to the Google case, the FTC/DOJ pre-judged unilaterally, and without statutory authority from Congress, that violations of privacy could never be considered anti-competitive or an antitrust issue. This antitrust policy, not law, means that the FTC ignored in the search bias case one of the primary direct consumer harms of Google's advertising model where the consumer is the effective product Google sells to advertisers -- i.e. consumer of loss of privacy. This hidden loss of consumer privacy with no opt out, puts consumers at greater personal risk from fraud and harm, and lessens a consumers' negotiation leverage with merchants, because merchants now can know much about a consumer's intimate commercial intents, ability-to-pay and timetable for purchase -- without that consumer's knowledge.
Tautologically Google is not Microsoft. The fallacy here is thinking that because Google did not harm competition in the manner that Microsoft did, Google did not harm competition.
Myopically and shortsightedly, the FTC looked at the practice of a dominant player ranking its own products over competitors' products, as only harming competitors and not competition. The fatal logical flaw here is this self-dealing practice can be used successively to eventually eliminate all competitors to Google in many markets. If leveraging market power in a way that can successively eliminate potentially all competitors in a market doesn’t harm "competition," what does? The perverse logical extension of this FTC Google-is-not-Microsoft thinking is that an innovative monopoly extending its dominance into new markets is better for consumers than competition.
Importantly, the DOJ's official past actions do not agree with the FTC's current analysis of antitrust law. The DOJ successfully blocked the proposed Google-Yahoo Ad Agreement as anti-competitive by threatening a Sherman Act Section 1 & 2 monopolization case against Google. DOJ would not have threatened prosecution in that case if it thought it had to prove that the consumer harms outweighed the consumer benefits. DOJ understood the obvious -- a dominant firm leveraging its market power into an adjacent market is anti-competitive. Observers would be mistaken if they assumed the DOJ will genuflect to the FTC's antitrust-neutering frame with Google going forward.
2. Google has already lost on search bias in the EU.
American conventional wisdom about the EU-Google antitrust outlook is misinformed about the fundamentally different antitrust decision process in the EU versus the US. Where the FTC recently was in the process of deciding whether to even bring a case or not, the EU has already effectively decided that Google has violated EU antitrust law in four ways, including search bias, per an EU statement. Unlike in the U.S., the EU antitrust prosecutor and judge are one in the same. Thus the EU effectively gave Google a sentencing ultimatum last year, to offer acceptable remedies to settle the EU's complaint or the EU will make official its pending Statement of Objections and commence sanctions including fines of up to ten percent of revenues. Simply, if Google does not offer satisfactory enforceable remedies, the EU can immediately find Google a monopoly guilty of search bias and the other abuses that EU Vice President Almunia enumerated publicly.
Apparently to avoid an explicit monopoly finding and a multi-billion-dollar fine, Google has opted to settle by offering enforceable remedies that will prohibit any of the determined anti-competitive behaviors, including search bias, so that the proposed remedies can be shared and market tested with competitors and then finalized in a binding and enforceable consent decree.
Tellingly in reaction to the FTC decision, the EU said: "We have taken note of the FTC decision, but we don't see that it has any direct implications for our investigation" of Google.
3. Those harmed by anti-competitive behavior are now much less likely to seek redress from the FTC.
Expect companies who believe that Google or other Internet companies have engaged in anti-competitive behavior to petition either the DOJ or the EU for antitrust enforcement not the FTC. The glaring problem with the FTC's admonition that it only "protects competition not competitors" is that "competition" has no name, face, voice, or even legal standing to petition the FTC but for competitors and other organizations.
Disturbingly, after months of saber-rattling that the FTC was preparing to prosecute Google, after the FTC decided to sue/settle over Google's anti-competitive abuse of Standard Essential Patents (SEP), and after having three votes to sue Google for anti-competitive "scraping" of competitors content (per Politico), in the end the FTC effectively scapegoat-ed complainants as the bad guys and implied Google was the real victim in its investigation. Thus Google won much more from the FTC than just this case. They won the perception game that future complainants shouldn't even try to challenge Google at the FTC because Google owns a strong home field advantage there.
4. The FTC effectively has redefined self-regulation to include self-enforcement too, establishing a new de-facto FTC "honor system" for potential Section 5 Internet antitrust problems.
The practical and political effect of the FTC resolving the highest profile antitrust matter in the 21st century with "voluntary commitments" is to establish the "FTC Google Rule." Expect every alleged antitrust violator going forward to plead for the "Google Rule" be applied to them. And if the FTC does not and prosecutes them, they will appeal arguing that under established, high-profile FTC precedent, the FTC did not afford the complainant equal protection under the law.
The FTC's politically expedient enforcement precedent here will long haunt future FTC's who will have to deal with future alleged violators saying: If Google -- the most dominant Internet company, which owned the worst antitrust record of the 21st century, and which had violated an FTC consent order -- can enjoy voluntary self-enforcement, why can't a non-dominant company, with a better record of market behavior than Google, get the same benefit of voluntary "self-enforcement" as Google when coming before the FTC?
5. The FTC's decision effectively makes the FTC Section 5 authority largely irrelevant in Internet enforcement going forward.
The practical effect of this FTC antitrust precedent is to make the FTC's separate Section 5 authority against unfair and deceptive business practices largely indistinguishable from the Sherman antitrust precedent under U.S. vs. Microsoft. These laws have much different language, intent and reach; and were written at very different times for different purposes. That the FTC effectively would apply a Sherman precedent to a potential Section 5 case makes little sense unless the FTC was grasping for a stronger public reason to justify not prosecuting Google.
Why this matters hugely is that under a narrow reading of Sherman precedent, consumer harm must be calculated to determine if there is a net-benefit or harm to consumers or innovation, while Section 5 consumer harm was already decided by Congress -- if an act is deceptive it is prima facie consumer harm. The bipartisan Senate investigation found evidence Google strongly represented to the public that it never manipulated its search and evidence that it did indeed bias its own products over competitors. How the FTC could not find such obvious and sweeping misrepresentation to 240 million American consumers to be deceptive appears inexplicable. In effect, the FTC perversely has signaled that deceptive practices and misrepresentation are now ok, if the FTC can calculate that consumers are helped more than hurt by a deceptive practice. In other words, FTC antitrust enforcement appears to be strictly a utilitarian analytical task that gives little weight to the fact that breaking the law undermines justice or is morally wrong.
Underscoring the FTC's exceptional reticence to use its Section 5 antitrust authority is how the FTC politically chose to not prosecute Google even when they had a majority of three votes to prosecute. In the post-decision finger-pointing in the press reported by Politico, we have learned that Commissioners Liebowitz, Brill and Ramirez all believed that Google's "scraping" of other sites reviews and presenting them as their own was an anti-competitive misappropriation of others' property. If the FTC won't use its Section 5 unfair and deceptive practices authority to prosecute a company that steals competitors' property and effectively fences it to the public as its own when a majority of the FTC believes the practice illegal, the FTC bar for antitrust prosecution has gotten disturbingly high. This particular outcome indicates that the FTC's prosecution decisions can be more political than judicial.
6. The FTC's Standards Essential Patents consent order means Google's core reason for buying Motorola has backfired and the primary perceived benefit of the acquisition is largely nullified.
The core reason Google bought Motorola was for its ~17,000 patents to protect Android from a "hostile organized campaign against Android by Microsoft, Oracle, Apple and other companies waged through bogus patents." As I predicted shortly after Google bought Motorola, Google CEO Page's strategy to use Motorola's patents to "hold-up" other patent holders ultimately would be ruled illegal/anti-competitive, which it now has been by the FTC. Both the DOJ and EU warned Google after approving Google's purchase of Motorola that not licensing Standard Essential Patents (SEP) on the contractually required fair and reasonable terms would be an anti-competitive business practice. Google ignored these warnings leading to the FTC's consent order prohibiting such anti-competitive abuse of SEPs.
Now Google still faces the same patent threats to Android, enjoys antitrust oversight of its patent negotiation behavior for several years, and owns a business that is a substantial drag on Google's revenue growth rate, profitability and valuation. If Google knew what they know now, that the primary reason for buying Motorola -- mitigating their Android patent vulnerability -- would backfire and place Google under antitrust supervision, Google most likely would not have bought Motorola.
Others probably wish Google hadn't led by example in the marketplace in abusing SEPs to extort an extra advantage in patent licensing negotiation and litigation. Samsung, Google Android's main hardware supplier, has already been sanctioned by the EU for anticompetitive behavior similar to what the FTC just sanctioned Google for. A patent pool consortium, MPEG LA, has attempted similar anti-competitive "hold-up" behavior. MPEG LA formed in 1996 to manage standards essential patents critical to providing digital audio and video compression had to provide the DOJ with a business letter of commitments on how it would manage the patents to avoid anticompetitive problems. MPEG LA is allegedly no longer abiding by the FRAND assurances it made to the DOJ putting it also at risk of antitrust sanctions going forward.
7. Google's 2013 enforcement risk is centered in the EU on antitrust, privacy and intellectual property.
Google's big win at the FTC mitigating its U.S. antitrust risk for the time being, appears to have distracted observers from the reality that European Union laws are much stricter than America's. This means that just because Google practices have not run afoul of U.S. antirust, privacy, or intellectual property law, does not mean Google will not run afoul of EU law.
Google Unaccountability Series:
Part 0: Google's Poor and Defiant Settlement Record
Part 1: Why Google Thinks It Is Above the Law
Part 2: Top Ten Untrue Google Stories
Part 3: Google's Growing Record of Obstruction of Justice
Part 4: Why FTC's $22.5m Privacy Fine is Faux Accountability
Part 5: Google's Culture of Unaccountability: In Their Own Words
Part 6: Google Mocks the FTC's Ineffectual Privacy & Antitrust Enforcement
Part 7: An FTC Googleopoly Get Out of Jail Free Card?
Part 8: Top Lessons to Learn for Google Antitrust Enforcers
Part 9: Google Mocks EU and FTC in Courting Yahoo Again
Part 10: FTC-Google Antitrust: The Obvious Case of Consumer Harm
Part 11: Why FTC Can't Responsibly End the Google Search Bias Antitrust Investigation
Part 12: Oversight Questions for FTC's Handling of Google Antitrust Probe
Part 13: Courts Not FTC Should Decide on Google Practices (The Hill Op-ed)
Part 14: Troubling Irregularities Mount in FTC Commissioners' Handling of Google Antitrust Investigation
Part 15: Top Ten Unanswered Questions on FTC-Google Outcome